Scenario 18-3.Assume the following information for an imaginary,open economy.
Consumption = $1,000; investment = $300; net exports = $100;
taxes = $230; private saving = $200; and national saving = $150.
-Refer to Scenario 18-3.For this economy,GDP equals

Question

Quizplus · Accepted Answer

GDP is calculated as the sum of consumption, investment, and net exports. Therefore, GDP = $1,000 (consumption) + $300 (investment) + $100 (net exports) = $1,400. However, the correct GDP should also account for government spending, which can be derived from the given national saving and private saving. National saving = private saving + public saving, and public saving is taxes minus government spending. Given national saving is $150 and private saving is $200, public saving is -$50. Therefore, government spending is $230 (taxes) - (-$50) = $280. Adding government spending to the previous total gives GDP = $1,400 + $280 = $1,680.